On 19 June LBGCBP hosted a special three paper workshop with presentations from Professor Michael Fritsch, Professor David Storey and Professor Tomasz Mickiweicz.

Speaker: Professor Michael Fritsch
Title: Does Successful Innovation Require Large Cities? The Case of Germany
Abstract: Some popular theories claim that large cities provide a much better environment for successful innovation activities than smaller cities or remote and rural areas. We show that Germany together with some other countries provides a counterexample to such theories. Taking the case of Germany, we investigate the spatial structure of innovation activity today and the reasons why firms in remote and rural areas are able to innovate successfully. We conclude that the popular theories that predict higher productivity of innovation activities in large cities ignore other important factors, particularly the role of labor market institutions and of historical factors. As a result of these deficiencies, the policy implications of these theories may be rather misleading. Finally, promising avenues for further research are discussed.

Speaker: Professor David Storey
Title: Taking the Entrepreneur out of Entrepreneurship: A chance-based theory of new firm performance
Abstract: A central theme of much entrepreneurship research is to place the individual business owner, or group of business owners, at the heart of both the decision to start a new business and then as an explanation for how that business performs once it begins. The role of the external environment is explicitly acknowledged in some but not all cases and, most frequently, as a “control”. Instead, it is the skills/talent/ attitudes and motivations, captured in the term “human capital”, of the individual owner (s) which are assumed to be the dominant influences on the performance of a new firm. These characteristics are reflected, for example, in the educational attainment of the owner(s), their relevant prior work or entrepreneurial experience, or their ability to acquire knowledge, skills or expertise through either through social or family networks or by entrepreneurial learning. This implies the owners exercise some control over the outcome of the new businesses they establish.

This paper adopts a radically different theoretical framework. Following on from Levinthal (1991), it makes the case that the performance of a new venture is a random walk. So, instead of assuming the entrepreneur influences, or even has control over, the performance of the new business we make the reverse assumption. It is that the human capital characteristics of the founder(s) do not influence the performance of the new business. The Levinthal model is then developed in four novel ways to derive hypotheses which are then tested using Bank-based data on 6578 new firms, all of which are tracked for either ten years or until they exit.

Speaker: Professor Tomasz Mickiewicz
Title: Unbundling Brittelstand: Ownership as a Factor in Performance
Abstract:This paper seeks to re-examine the potential link between the performance and ownership of business firms. This is particularly relevant for the UK, as the British sector of mid-sized businesses (‘Brittelstand’ – i.e. companies between £10m and £100m turnover) makes a much smaller contribution in turnover than the equivalent in Germany, Sweden and Finland. It also makes a slightly smaller contribution to employment than in these countries too; and it is characterised by relatively weaker productivity, compared with other countries. Nevertheless, it generates about a quarter of private sector revenue and has a 16% share of UK total employment. We argue however, that focusing on the criterion of size is misleading. It is ownership that is the key issue. We investigate how the performance of British companies is affected by three interrelated factors: their ownership structures (as seen both in static and in dynamic perspective), their age, their size, and in the interaction of these dimensions. In particular, we analyse how dispersed or concentratedownership, and also changes in ownershipinfluence productivityand/orturnovergrowth.

Inrelation toempirical resultswefindthat mean productivity increases within firmsintheearly stagesoftheirbusinessactivity, but after five years since registration, mean productivity starts to decrease. In other words, we document, a non-linear relationship between the age of firms and their performance. Furthermore, we find that young firms tend to benefit more from concentrated ownership, which suggests there might be fewerfrictionsandlowertransactioncostsbetweenmanagementandownersintheearlyyears of business activity. Nevertheless, these effects do not hold for older firms. Indeed for older firms, more dispersed ownership leads to higher levels of performance by firms. This suggests that older firms are able to gain from a diverse pool of owners –i.e. through better access to knowledge transfer as well as to financialresources. Furthermore, the positive effect of concentrated ownership for young firms is counterbalanced by a positive effect of ownership change. Again, the latter effect is less pronounced for older companies. It may be that for younger companies, new owners represent new resources and knowledge; and likewise the ability to amend ownership structures that did not initially work successfully is an advantage.

Overall, our results imply that the current discussion, that uses the concept ‘Brittelstand’ and focuses on size, is misleading, as it is the owners who are the key to understanding performance, especially for young firms. This should come as no surprise for entrepreneurship scholars.